BHP Billiton chief executive Andrew Mackenzie Tuesday gave a fairly gloomy outlook for the steel and iron ore market on a media call from London but said he believed the miner's efforts to reduce costs and raise productivity would hold it in good stead.
Mackenzie was delivering a record loss of $6.4 billion for the 2015-16 financial year ending June 30 -- a year in which the Samarco dam burst occurred in Brazil.
BHP's iron ore division reported revenues of $10.5 billion and underlying earnings before interest and tax of $3.7 billion for the year to June 30. This compared to revenues of $14.7 billion and EBIT of $6.9 billion in the 2014-15 financial year, meaning this year's results were down 28% and 46%, respectively.
He attributed higher iron ore prices in recent months to stimulus measures in China and a slower-than-expected ramp-up of new supply from low-cost producers.
Despite this, Mackenzie said the company believed "iron ore prices have more risk to the downside going forward." He described the higher commodity price environment as a "pause in the price fall", which allowed the miner to "open up" stronger margins, particularly as it had halved unit cash costs over the past three to four years.
Mackenzie said BHP had slowed its iron ore expansion in the Pilbara to implement a maintenance program but would lift production at its Jimblebar mine in Western Australia at the end of the year.
More productivity gains would allow the miner to extract decent margins in an environment of falling iron ore prices, he said.
In the company's financial report released Tuesday, it said the iron ore cost curve over the short to medium term "should continue to flatten as new seaborne supply ramps up." "In the future, the marginal producer's cost structure should determine the long-term price," the company said.
It pointed out that Chinese steel production rose in the April-June quarter due to stronger construction demand but that "this is expected to soften over the rest of the calendar year." BHP reaffirmed its view that Chinese crude steel production would peak at 935 million-985 million mt by the middle of the next decade.
"Global scrap availability will also increase over time and substitute pig iron as a steel making input," the miner said.
On the call, Mackenzie said headline economic growth in China would "taper down off a very large base," but the country remained "well managed" and would continue to generate strong demand for BHP's products.
Mackenzie continued BHP's recent narrative that it saw demand growth, notably in India, but also in other emerging Asian countries, picking up the slack from a slowing China.
